PayPal freezes $45,000 of Mailpile’s crowdfunded dollars (Updated)

Demands "itemized budget" from Iceland-based team before releasing funds

Update: PayPal has contacted Ars Technica and informed us that it has released Mailpile's funding. PayPal's statement is below.

Mailpile is a crowdfunded e-mail client written by a small group of folks in Reykjavik, Iceland. The product aims to let users keep their mail local and under their own control rather than relying on Google, Microsoft, or another cloud e-mail provider, and it has an active Indiegogo campaign with six days left on the clock (disclosure: I'm a backer).

PayPal has a long and storied history of freezing money belonging to customers that it suspects of fraud (like Minecraft designer Markus "Notch" Persson) or that it nebulously accuses of failing to adhere to its terms of service (like WikiLeaks and Courage to Resist, an organization that supports convicted WikiLeaks leaker Chelsea Manning [formerly known as Bradley Manning]).

Novak contacted PayPal in an attempt to access the nearly $45,000 of contributions the payments giant had locked Mailpile out of, but was flatly told that PayPal would be keeping the funds frozen for a full year or until they have a verifiable 1.0 release of their product. Alternately, PayPal said, Mailpile could provide PayPal with "an itemized budget and your development goal dates" for the project.

It's unclear what options Mailpile has. In the US, PayPal is not considered a bank and operates under none of the legal constraints that apply to financial institutions. There is also the question of jurisdiction; Novak summarizes the issue thusly on Mailpile's blog:

This puts us in an incredibly uncomfortable position as we do not feel that it's remotely in their jurisdiction to ask for a detailed budget of our business, any more than it is within our right to ask for theirs.

Communications with PayPal have implied that they would use any excuse available to them to delay delivering as much of our cash as possible for as long as possible. Asking us to give them justification for such behavior is obviously not in our best interests. PayPal's position [is] particularly ridiculous when contrasted with IndieGoGo's policy of transferring all funds to successful campaigns within 15 days of their conclusion. If IndieGoGo can do it, so can PayPal.

Unfortunately, Mailpile likely has a hard road ahead fighting through PayPal's notoriously obtuse and unresponsive "fraud" process—a process so broken that PayPal itself has acknowledged it's in need of "aggressive changes." If past freezes are any indication, the best way forward is almost certainly to abandon attempts at redress through customer service and simply make as much noise as possible in the press to get PayPal's upper management to take notice.

Ars contacted Mailpile to ask if PayPal has made any further offers of assistance, but according to Novak, it has not:

No, PayPal has been quite difficult and is asking for unreasonable private details about our business—it's all very strange. However, we have faith that we are in the right and will thus prevail. Afterwards I will be deleting my PayPal account and never looking back.

Update: PayPal has notified Ars Technica via phone and e-mail that it has released Mailpile's crowdsourced funding, and it is working on modifying its oversight procedures to better cope with crowdfunding. Here is the company's full statement:

We have reached out to MailPile and the limitation has been lifted. Supporting crowd funding campaigns is an exciting new part of our business.We are working closely with industry-leaders like IndieGoGo and adapting our processes and policies to better serve the innovative companies that are relying on PayPal and crowd funding campaigns to grow their businesses. We never want to get in the way of innovation, but as a global payments company we must ensure the payments flowing through our system around the world are in compliance with laws and regulations. We understand that the way in which we are complying to these rules can be frustrating in some cases and we've made significant changes in North America to adapt to the unique needs of crowd funding campaigns. We are currently working to roll these improvements out around the world.

Ars will be meeting with a PayPal spokesperson later today to discuss the matter further.

Betray us, Paypal, and I will fong you, until your insides are out, your outsides are in, your entrails will become your extrails I will w-rip... all the p... ugh. Pain, lots of pain.

I giggled...

More to the point however, it would seem to me that Paypal has to give the money to someone. IANAL, but I was always told that you can keep the money, the product, but not both. If Paypal won't provide the service they said they would, they would have to return the money to the funders, wouldn't they?

The real problem is that PayPal has already demonstrated that they don't intend to keep up their end of the bargain. Even if Mailpile does come up with one or both of the things PayPal has demanded there's no guarantee that they will release the funds. PayPal's fraud procedure is itself fraud.

What would happen if they filed an accusation of theft? They stole $45k from me and my company, arrest them and get me my $ back.

As a payments processor, I sure hope Paypal is under some obligations to check that its services aren't used for money laundering, fraud or other illegal activities. That said, since they have the power to unilaterally freeze an account (with all the damages it can cause to the account holder), they'd better have a quick and transparent process to deal with these situations.

I used the service three times. The first time it worked fine, the second time the seller had a hell of a time actually getting PayPal to pay up (I had the confirmation email, so the seller had no problem with _me_, fortunately), the third time I got hosed on a supposedly-protected payment (seller didn't deliver) and PayPal basically said "Well, that sucks, but we don't actually have to do that thing we said we'd do because".

My impression of PayPal has been one of capriciousness; sometimes it works fine, sometimes you have a problem and they work to resolve it, sometimes they just say "meh, don't feel like it" and leave you in the lurch.

At some point, people are going to have to realize that using Paypal is just not a good idea. How many times has this happened and yet nobody seems to be learning to stay away from them?

Until there is a widespread and well-known alternative people will continue to use it. Right now no such alternative exists, so the options are paypal or nothing.

Amazon Payments. Anyone that has an Amazon account (which is a very large group of people) can use it.

I know it exists. I know how to use it.The problem is it isn't well-known and widespread enough to be a replacement. Try explaining to an ebay buyer or seller about sending money through amazon payments.

It's becoming the defacto standard for crowdfunding though - via kickstarter. It just needs to expand the countries served. And despite the post above, it does cover a few countries beyond the US but not very many.

And he can't legally or medically become "Chelsea" until he finishes his prison sentence, so I don't see why you are playing that part of it up.

She certainly can, getting surgery and hormonal treatment while in prison is certainly legal, as is filing to change her name legally.

True and not true.

As a prisoner that is still in the military (yes he is) Manning can get surgery and hormonal treatment while in prison at his own expense for the surgery and initial course of hormonal treatment (if the Army gives its permission for him to do that), after that any continuing care cost would be provided by the government.

As a prisoner that is still in the military Manning can apply for a name change, but can't legally change his name while serving the sentence as a military prisoner unless the Army allows it to be done.

Manning is still in the Army, the official policy of the U.S. Army is “The Army does not provide hormone therapy or sex-reassignment surgery for gender identity disorder”

If Manning wants it he is going to either pay for it himself, or take the government to court to force the government (and thus the tax payers) to pay for it.

His legal gender is still male and his legal name is still Bradley Manning no matter how much he wants, or others recognize, it to be Chelsea Manning or be female at this time.

I know this will not be a popular post probably, so down vote away. Not trying to be insensitive, just recognizing the realities that Manning is a little different case as he is in the Army and not like a regular prisoner in the regular federal system, so a broad and unqualified it being legal needs to be looked at in context with the specific case. So the only 'formally known as' thing about Manning in regards to gender and name is that Manning wishes to be called Chelsea and wants to live as a woman, but legally right now he isn't 'formally known as' any other person or gender other than Bradley and male.

I can see the consideration towards what is lawful, but as the old adage goes, it's not always what is right. I would concede that the single sentence aside in the article contains bias, in the form of endorsing even a small display of civil disobedience, wherein the lawful restrictions are called into question as the identity of an individual should fall strictly to the individual to mold as they see fit. Seems something the government should have virtually no control over, the definition of self, but that's just an opinion and I have no formal legal argument to back it up.

I used the service three times. The first time it worked fine, the second time the seller had a hell of a time actually getting PayPal to pay up (I had the confirmation email, so the seller had no problem with _me_, fortunately), the third time I got hosed on a supposedly-protected payment (seller didn't deliver) and PayPal basically said "Well, that sucks, but we don't actually have to do that thing we said we'd do because".

My impression of PayPal has been one of capriciousness; sometimes it works fine, sometimes you have a problem and they work to resolve it, sometimes they just say "meh, don't feel like it" and leave you in the lurch.

They put me in collections for $400 one time, because a buyer thought her item didn't arrive. The buyer revoked the payment, and her item was delivered shortly thereafter. Somehow Paypal came after me about it, I think she probably used a credit card and pulled the money from them that way.

Amazon Payments. Anyone that has an Amazon account (which is a very large group of people) can use it.

"Money transfer services are currently only available in the United States".

Which means, unavailable for… you know, most of the world.

Damn, didn't realize that. Sorry.

That "not available outside the us" thing isn't exactly as solid a barrier as some imply it to be. Plenty of non-US kickstarters have gotten around it quite legally by incorporating in the US or using third party services as intermediaries. European companies can also incorporate in the UK which is officially served as well. And beyond that there are guides on how to do it in general for non-US based crowd-funding projects, for example:

I've avoided using PayPal as much as possible since the Minecraft/Notch incident, this story annoyed me so much I decided to make it final and I just finished closing my account. I doubt they'll read it or care, but I left them a rather strongly worded letter in the 1000 letter closing account comment box.

I don't use PayPal, or indeed any related service, so they can choose whether or not to give the funds to the person I chose. I use them because they are a money processing service, not so they make sure that my funds only go to services they believe are legitimate. Also, I'd like to know how much money they've ended up with from freezing funds that mysteriously couldn't reach a level of proof that satisfied them..

I really hope they do this to the wrong people and end up on the wrong end of several expensive settlements.

As a payments processor, I sure hope Paypal is under some obligations to check that its services aren't used for money laundering, fraud or other illegal activities. That said, since they have the power to unilaterally freeze an account (with all the damages it can cause to the account holder), they'd better have a quick and transparent process to deal with these situations.

I can't speak for Paypal's legal obligation to detect and prevent fraud. I would be surprised if they did not bear some burden there, however.

As for frozen accounts, fraud detection and the process they offer to deal with the two things - transparent and quick are concepts that do not occupy space in the same universe as Paypal's dispute process. "Opaque" and "glacial" are closer, but still only barely do the process justice.

Until you've actually dealt with it you really can't imagine how bad it actually is and I say that in all seriousness. No snark at all.

Aaaaaaaaand the topic's derailed by a single reference to Chelsea Manning. While we're at it, kudos to Ars for respecting her wish. I don't give a rat's ass what her legal status is. She made a request to be treated as a woman, and anyone can follow up on that or not. By the way, this was the first I heard about the gender issue, I even had to confirm it was the same Manning.

As a payments processor, I sure hope Paypal is under some obligations to check that its services aren't used for money laundering, fraud or other illegal activities. That said, since they have the power to unilaterally freeze an account (with all the damages it can cause to the account holder), they'd better have a quick and transparent process to deal with these situations.

I can't speak for Paypal's legal obligation to detect and prevent fraud. I would be surprised if they did not bear some burden there, however.

As for frozen accounts, fraud detection and the process they offer to deal with the two things - transparent and quick are concepts that do not occupy space in the same universe as Paypal's dispute process. "Opaque" and "glacial" are closer, but still only barely do the process justice.

Until you've actually dealt with it you really can't imagine how bad it actually is and I say that in all seriousness. No snark at all.

Thanks for the context. I've never used Paypal before and therefore have no idea how prevalent these issues are. And it seems from some of the comments that they're not a regulated financial institution. Which kind of makes me itchy.

At this point why would anyone ever keep any amount of money in a PayPal account? Use it to receive payments, when there's no other option, okay. But never, ever carry a balance, even for a day.

Doesn't matter. They'll reverse transfers from your bank account if they're still in flight if they're not happy.

I've had to provide them "proof of inventory" and invoices for hardware I was shipping out, and have had them freeze funds in a business account I was using to complete a cluster build for a customer. They then called said customer to verify that I was, in fact, providing the service I claimed I was, and kept the funds frozen until I delivered hardware and gave them a signed delivery receipt from the customer.

They claim "They're interested in my business practices and want to understand my business model better so they can help me." It's a load of crap. They shook me down because I was selling bitcoin mining hardware, and admitted as much on the phone ("There's a lot of fraud and chargeback in this area, so we want to ensure people are actually shipping..." - despite very happy eBay buyers).

Not really. 1.0 release just means labeling a release as 1.0. It doesn't mean the release is bug free, or you are done working on it. It just means you've labeled the release as 1.0. It's magical number theory in reality.

If I was them, I'd feature freeze. Do an assessment of all features based on bugginess and whether it's required. Then possibly cut a few features from 1.0. Do a hard push to do the minimum necessary fixes for the features kept. Label it as 1.0 and release it. While at same time releasing a realistic list of features to be aimed for in 2.0.

Then say look, we've released a 1.0 to our supporters, release the money. And if they ever get the money from paypal, yank it out of paypal and put it in some other bank.

They could theoretically just release a 1.0 that's just a renamed existing terminal based mail client, or if they want to be moderately credible, a script that runs pgp and then an existing terminal based mail client, but that would just be cheapening the value of a 1.0 release, and would be a very stupid thing to do to deal with Paypal's dickery.

That "not available outside the us" thing isn't exactly as solid a barrier as some imply it to be. Plenty of non-US kickstarters have gotten around it quite legally by incorporating in the US or using third party services as intermediaries. European companies can also incorporate in the UK which is officially served as well.

And how do you propose that *people* from outside the US send payments, when the registration form requires a US postal address as well as a social security number?

It's nice and dandy to be able to accept payments, but rather restrictive if only US citizen can donate to your cause.

Edit: er, is a credit card (from any country) the only thing that's required for sending payments? Still, that's a lot of paper work for a non-US, non-formal organization of developers who just want to code.

And unfortunately, that apparently extends to Ars's readership given the transphobic comments and downvotes here. Glad to see the staff doesn't share it at least.

Could downvotes have anything to do with the fact that Manning has absolutely nothing to do with this issue, and seeing the same tired arguments go back and forth from people who, for the most part, don't understand what is or isn't allowed, is annoying and distracts from the issue at hand?Or would you rather just insult people?

So the only 'formally known as' thing about Manning in regards to gender and name is that Manning wishes to be called Chelsea and wants to live as a woman, but legally right now he isn't 'formally known as' any other person or gender other than Bradley and male.

Who care what she legally is or isn't known as as? Is this ars' article a will? A trust? A deed? Any sort of legal document at all? No it isn't -- so why the fuck should we care what her legal name is?

And he can't legally or medically become "Chelsea" until he finishes his prison sentence, so I don't see why you are playing that part of it up.

She certainly can, getting surgery and hormonal treatment while in prison is certainly legal, as is filing to change her name legally.

True and not true.

As a prisoner that is still in the military (yes he is) Manning can get surgery and hormonal treatment while in prison at his own expense for the surgery and initial course of hormonal treatment (if the Army gives its permission for him to do that), after that any continuing care cost would be provided by the government.

As a prisoner that is still in the military Manning can apply for a name change, but can't legally change his name while serving the sentence as a military prisoner unless the Army allows it to be done.

Manning is still in the Army, the official policy of the U.S. Army is “The Army does not provide hormone therapy or sex-reassignment surgery for gender identity disorder”

If Manning wants it he is going to either pay for it himself, or take the government to court to force the government (and thus the tax payers) to pay for it.

His legal gender is still male and his legal name is still Bradley Manning no matter how much he wants, or others recognize, it to be Chelsea Manning or be female at this time.

I know this will not be a popular post probably, so down vote away. Not trying to be insensitive, just recognizing the realities that Manning is a little different case as he is in the Army and not like a regular prisoner in the regular federal system, so a broad and unqualified it being legal needs to be looked at in context with the specific case. So the only 'formally known as' thing about Manning in regards to gender and name is that Manning wishes to be called Chelsea and wants to live as a woman, but legally right now he isn't 'formally known as' any other person or gender other than Bradley and male.

I can see the consideration towards what is lawful, but as the old adage goes, it's not always what is right. I would concede that the single sentence aside in the article contains bias, in the form of endorsing even a small display of civil disobedience, wherein the lawful restrictions are called into question as the identity of an individual should fall strictly to the individual to mold as they see fit. Seems something the government should have virtually no control over, the definition of self, but that's just an opinion and I have no formal legal argument to back it up.

Part of being in the military is surrendering certain things for the duration of service. And we volunteered for it. I have no problem with Bradley becoming Chelsea once his prison service is up and he's officially got his discharge. But until then he's not going to be getting hormone treatments, living as a woman, receiving cosmetic surgeries or ultimately reassignment surgery, or even be able to change his name. Even in the loosest sense of things he's not going to start to be "Chelsea" for several years at least, so it's just being sensationalist to report on him that way.

Three words every internet-user should adhere to in 2013: Stop using PayPal.

Curious. What do you (or the Ars staff and community at large) recommend we switch to? What options exist that are similar enough to PayPal to be a wholesale replacement, without the obnoxiously obtuse rules and demands?

I've personally had no problems when PayPal freezing funds, but I am probably in the minority here. Is there some set of 'trigger' things that set PayPal off on this kind of stuff? Over $xx,xxx, or using a certain domain to login? Not using a 'Business' account when doing something like IndieGoGo?

So the only 'formally known as' thing about Manning in regards to gender and name is that Manning wishes to be called Chelsea and wants to live as a woman, but legally right now he isn't 'formally known as' any other person or gender other than Bradley and male.

Who care what she legally is or isn't known as as? Is this ars' article a will? A trust? A deed? Any sort of legal document at all? No it isn't -- so why the fuck should we care what her legal name is?

I hate to say "I told you so", but anyone who depends on PayPal is a fool. Why they haven't been crushed by banking regulators says a lot about Wall Street regulation in general and banking regulation in particular. Who would have thought that Pay Pal would have enough money to bribe the U.S. government? Then again, the new owners paid Elton Musk enough for it that he was able to launch two revolutionary new businesses, so they obviously have very deep pockets.

Bottom line: PayPal is a bunch of crooks and I would never use them as a payment service for my business.

Paypal may be in more trouble than we think. In a small sample: I already don't use Paypal, and the people I know who do, don't keep a balance anymore. Sure, they still get the transaction fees, but I'm betting balances were a not insignificant part of their business.

I hate to say "I told you so", but anyone who depends on PayPal is a fool. Why they haven't been crushed by banking regulators says a lot about Wall Street regulation in general and banking regulation in particular. Who would have thought that Pay Pal would have enough money to bribe the U.S. government? Then again, the new owners paid Elton Musk enough for it that he was able to launch two revolutionary new businesses, so they obviously have very deep pockets.

Bottom line: PayPal is a bunch of crooks and I would never use them as a payment service for my business.

Ebay buying them was pretty much the worst possible scenario, too, since it then meant that Ebay not only acted as the auction house but also the escrow agency, and it could only benefit from holding onto users' cash as long as possible.

Part of being in the military is surrendering certain things for the duration of service. And we volunteered for it. I have no problem with Bradley becoming Chelsea once his prison service is up and he's officially got his discharge. But until then he's not going to be getting hormone treatments, living as a woman, receiving cosmetic surgeries or ultimately reassignment surgery, or even be able to change his name. Even in the loosest sense of things he's not going to start to be "Chelsea" for several years at least, so it's just being sensationalist to report on him that way.

And I guess I bit that hook the author left dangling.

I don't believe Manning volunteered for 35 years of service. The rest of your argument about volunteering has some weight, but the 'you aren't discharged until you serve your sentence' is just a crock of shit.

At some point, people are going to have to realize that using Paypal is just not a good idea. How many times has this happened and yet nobody seems to be learning to stay away from them?

Until there is a widespread and well-known alternative people will continue to use it. Right now no such alternative exists, so the options are paypal or nothing.

What are you talking about? I buy stuff online all the time without using PayPal. The merchant just has to work a bit, that's all. PayPal is the easy way out, and for 99.9% of merchants it works out fine. But if you're in the 0.1% - and you won't know you are until PayPal gets a bug up their butt about you - then you're doomed, and now it's too late to line up an alternative payment method.

No business should put all their eggs in one basket. The UPS strike a few years ago taught my Brother-in-law that, and now his business uses both UPS and DHL. Similarly, if you use PayPal you should have an alternative payment method, just in case. Don't be lazy - offer your customers more than just PayPal!

Part of being in the military is surrendering certain things for the duration of service. And we volunteered for it. I have no problem with Bradley becoming Chelsea once his prison service is up and he's officially got his discharge. But until then he's not going to be getting hormone treatments, living as a woman, receiving cosmetic surgeries or ultimately reassignment surgery, or even be able to change his name. Even in the loosest sense of things he's not going to start to be "Chelsea" for several years at least, so it's just being sensationalist to report on him that way.

And I guess I bit that hook the author left dangling.

I don't believe Manning volunteered for 35 years of service. The rest of your argument about volunteering has some weight, but the 'you aren't discharged until you serve your sentence' is just a crock of shit.

No, its not "a crock of shit". The person receives a discharge but it does not actually take effect until the sentence is completed. So yes, you are not actually discharged until the time is served. Its why the military can maintain jurisdiction for the length of the sentence, because legally the prisoner is still in the military.

You are correct, Manning did not volunteer for 35 years of service. Manning committed offenses under the UCMJ to which he was subject for jurisdiction, a jurisdiction to which he willfully submitted himself when he enlisted, he was convicted and received the 35 year sentence for those offenses. Bad time (the sentence) does not count for length of service so in terms of length of service he is only credited with the time served before he got convicted. His discharge will become effective the moment his sentence time is fully served and completed. Manning is still in the military and still subject to military jurisdiction while he serves his time. His record will show the good time (time before the conviction) to his credit, and will then show the courts martial conviction and sentence as bad time, so if he had, for example, 8 years of good service time (before conviction time) his total time of service length will be 8 years (because bad time serving a sentence doesn't count for length of good service time).

I donated because the encrypted email goals issues they are addressing are important, and their work is being done open-source so whatever they accomplish will be a shared foundation for future work.

This is a seed-money contribution to develop an idea, not purchasing a product. I don't want my time-value donation intercepted by a "trusted" intermediary because they don't agree with my considered judgement for contributing my own money!

I notice that I could have used a bitcoin contribution instead of using Paypal. Bitcoin may be a better option in the future for contributions to open-source efforts that could become the target of repressions.

Lee Hutchinson / Lee is the Senior Reviews Editor at Ars and is responsible for the product news and reviews section. He also knows stuff about enterprise storage, security, and manned space flight. Lee is based in Houston, TX.